Insights for Achieving High Performance in Asia Pharmaceutical Market

Emerging Markets perhaps the most prized market by companies with the billions of citizens of China and India at its center. Each market has distinct growth potential (see Figure 1 Asian Sub-Market Trends in Per Capita Expenditures for Drug Therapies) and differing governmental health care policies and reimbursement standards, as well as cultural biases regarding the use of branded vs. generic drugs that impact their growth potential. In the case of China and India, two of the highest growth markets in the world, many companies are challenged to serve these huge countries well or even adequately. One issue is geographic: many potential customers live in mega-cities such as Beijing and Shanghai in China, and Delhi and Mumbai in India, which constitute sizable markets on their own. Yet the government reimburses 48% of pharmaceutical purchases, with this continuing to rise due to the changes announced in 2009 in healthcare reform the governments role in controlling drug lists will continue to execute considerable control over buying decisions. Furthermore, in China most sales are through large hospitals or clinics while in India pharmaceuticals are mainly purchased in pharmacies dotted throughout the country. Identifying, targeting and servicing patients in India is consequently more challenging than in China where significant volume of purchases go through large identifiable channels and a reimbursement policy exists creating awareness among the population of the range and availability of pharmaceutical product. Both markets represent enormous opportunities for pharmaceutical companies but require very different strategies and infrastructure to take full advantage. At the opposite end of the spectrum from China and India stand Japan and other mature countries with developed health care systems. These also represent promising markets due to their grey-ing populations, strong governmental support for health care, and higher reimbursement rates for drug therapies, Once companies connect with consumers/patients they will find that attitudes about the products themselves differ among markets and demand tailored responses and in many cases can be heavily influenced by Government policies on healthcare reimbursement. In emerging markets, for example, many of the rising affluent will gravitate toward branded products. Where reimbursement rates are low (e.g. in India 92% of pharmaceutical purchases are not government reimbursed), consumer/patient perception and choice coupled with physician preference has a strong influence on product sales. On the other in China,
Figure 1: Per Capita Spend vs Market Growth and Market Size
Country India Vietnam Indonesia China Per Capita Spend 2008 $7.2 $8.9 $11.8 $18.0 $21.9 $42.3 $44.3 $121.6 $150.3 $218.4 $450.9 $627.1 Pharma Mkt 2008 ($B) $8.5 $0.8 $2.7 $24.0 $1.9 $2.9 $1.2 $0.6 $3.5 $10.6 $9.6 $80.1 CAGR 2003 - 08 13.7% 25% 10.9% 21.6% 10.1% 13.5% 15.4% 15.8% 3.8% 10.9% 7.9% 2.7% (2)0% -$3.9 7-10% $5.4 CAGR 2008 - 13(E) 11 -14% 17 -20% 7-10% 20 -23% 6-9% 10 -13% $ Growth Forecast 2008 - 13(E) $6.8 $1.0 $1.4 $39.6 $0.9 $2.1

Anne ORiordan
Accenture Managing Director APAC Life Sciences

there are also a substantial percentage of citizens in hard-to-reach rural locations. Companies are faced with the logistical challenge of getting products to citizens and need to develop sales and distribution strategies and partnerships that reflect and respond to these realities.

Business pages and pharmaceutical industry conferences are filled with reports about the industrys potential in Asia. It is clear that recent double digit growth rates in the region will most likely continue1, making it critical to global companies. To succeed in Asia, company strategies need to reflect the diversity of healthcare policy and socio-economic maturity present across the geography. This region and the countries within it merit tailored approaches to optimize performance and address market complexities. Critical inputs to synthesize include government reimbursement policy and healthcare objectives, consumer/patient preference and market trends that impact product choice and portfolio as well as practical approaches to ensure distribution and supply chain efficiency. This article outlines Accentures perspective on how companies should view the regions various markets, and recommends steps to take to get the most out of investments.

including therapies for aging populations suffering from Alzheimers and conditions such osteoporosis. In this bloc of countries the biggest and most recent change for pharmaceutical companies is the promotion of generic substitution driven by governments seeking to slow health care spending while ensuring access to necessary, proven products and services. The migration to generic therapies and the potential revenue they represent is at the core of many acquisitions and joint ventures, including Tevas joint venture with Kowa1 and Pfizers acquisition of a generic portfolio for Japan3.

Not One Market, But Many

Looking at Asia from the outside may mask the diversity of markets in the region. In our practice, we see the 40+ countries in Asia as falling into three large but distinct types of markets: (1) Mature Pharmaceutical Markets represented by countries like Japan, South Korea and Australia, (2) Maturing Markets comprised of southeast Asian countries such as Thailand, Indonesia and Vietnam, and (3)

Philippines Thailand Malaysia Singapore Taiwan

S-Korea

Australia Japan

Between the ends of the spectrum are countries such as Indonesia and Vietnam which have definite growth potential given their sizable populations (Indonesia has over 220 million people, and Vietnam nearly 90 million), but also have less standardized and predictable health care policies and less developed health care delivery infrastructure. However, companies looking at Asia should seek to understand the underlying political and health care trends and preferences in this group in order to make the best, most informed decisions about Asian investment strategies.

a solid business case can be disappointing and lead to unproductive investments. Companies can use different methods to understand and reach these new markets. Roche recently moved its Asia headquarters from Australia to Shanghai4 and several companies including Novartis have opened R&D facilities in China5 to cement their presence. Developing true understanding of the market is a process. Sanofi-Aventis "Prayas" initiative is a good example of how to do it. The program pairs rural doctors across India with specialists from semi-urban areas to share the latest medical knowledge and

example, Pfizer was required by Chinese antimonopoly regulations to divest its small swine-vaccine business to a Chinese subsidiary of Harbin as a condition of gaining approval for the Wyeth merger11. Companies should expect governments and medical communities in emerging countries to play more active roles as cross-border mergers impact more citizens. We advise companies to do their due diligence and homework to understand the market on a micro-segment level. We also try to help companies develop and execute product strategies that create balanced portfolios of high-end, patent-protected products and lower cost generics to withstand business cycles and capitalize on the socio-economic cycles in the region. Finally, designing and building the infrastructure to reach and educate doctors and other providers remains a challenge, but one worth meeting to capitalize on the opportunities in Asia. There is no doubt that the challenge and opportunity of bringing the right pharmaceutical products to the burgeoning populations of Asia combine to present one of the most exciting avenues for growth for global pharmaceutical organizations as well as a clear advance for patients who will gain access to higher quality medical solutions. Prudence, data-based strategies, the right product mix and the right partnerships to optimize market access are all critical for short and long term success.
1. IMS Health Market Prognosis 2009; MIDAS MAT Sep 2009; AMCHAM Pharmaceutical Committee Meeting Dec 2009. 2. FiercePharma newsletter dated March 29, 2010, Teva Outgrows Big Pharma in IMS Ranking. 3. FiercePharma newsletter dated December 1, 2009, Pfizer Japan staffs up for brand, generic launches. 4. ShanghaiDaily.com, City lures Roche as base for HQ, posted January 19, 2010. 5. Novartis news release dated November 2, 2009, Novartis announces USD 1 billion investment to build largest pharmaceutical R&D institute in China. 6. PharmAsia News interview (part 2 of 2): Sanofi-Aventis India Managing Director Shailesh Ayyangar On Building Infrastructure To Bring Affordable Drugs To Patients In Rural Markets. 7. PharmAsia News, May 16, 2010, Pfizer Delves Deeper In Generics Partnership With Strides Arcolab. 8. thepharmaletter, dated July 28. 2008, GSK sets out strategic priorities; deal with Aspen/Strides Arcolab 9. PharmAsia News, dated May 21, 2010, Abbott's Piramal Acquisition Is $3.72 Billion Push In Emerging Markets With Established Products. 10. FiercePharma newsletter dated May 28, 2010, Sanofi, Nichi-iko announce Japanese joint venture 11. Reported in PharmAsia News, June 1, 2010, and referenced in Pfizer, Wyeth Japan Subsidiaries Merge To Become Second-largest Pharma, June 02, 2010.

Pragmatic Strategies to Seize the Asian Opportunity

To be successful in Asia, pharmaceutical companies need to acknowledge that each market has unique characteristics as shown above, commit to conducting the analysis necessary to serve patients and providers well, and develop growth strategies that have several levers, including acquisitions, joint ventures, and partnerships designed to serve unique markets well. In addition, companies also need to be clear and focused with respect to their market positioning strategy a well articulated focus versus a try some of everything strategy, is much more likely to succeed. Understanding and serving patients, particularly new or hard to reach patients, requires innovation and determination, as well as developing credible data about critical business issues. In our experience, companies should think broadly and deeply about each market as an individual market, and take a hard look at core data, for example, growth in per capita expenditures on pharmaceuticals, to see what is driving them and how this informs the market entry strategy. In addition, companies need a firm grasp on whether and how each government is shaping healthcare spending and reimbursements, and be realistic about whether those policies can be influenced and reconciled with company price/cost strategies. Assuming profits will follow population growth without
Figure 2: Globalization of Pharmaceutical Companies
Target PiramalHealthcare Limited Dong-A Pharmaceutical ratiopharmGmbH EBEWEPharma Aspen Holdings Medley Pharmaceuticals Ltd LaboratoriosKendrick ZentivaN.V. Bristol-MyersSquibb Barr PHARMACEUTICALS INC. Bristol-Myers Squibb Ranbaxy Laboratories Limited Symbion Inc. , ZentivaN.V. IVAX Pharmaceuticals Eon Labs HEXALAG Alpharma Acquirer AbbottLaboratories GlaxoSmithKline plc Teva Pharmaceutical Industries Ltd. Novartis AG GlaxoSmithKline plc Sanofi-aventis Sanofi-aventis Sanofi-aventis GlaxoSmithKline plc Teva Pharmaceutical Industries Ltd. GlaxoSmithKline plc

clinical experience. It is a win-win for the company, providers, and patients6. Licensing has long been a strategy for pharmaceutical companies to enter new markets as recent activities in Asia confirm: Abbott has licensed generic drugs from India's Aurobindo Pharma and Pfizer is taking the same tack with Strides Arcolab7. GlaxoSmithKline is teaming with Aspen and Strides Arcolab to bring 1,200 generic products to market8. Once a company has established an effective sales and distribution capability, adding product to the portfolio can drive incremental revenue and profit by fully leveraging the infrastructure available. Mergers and acquisitions or joint ventures, however, are also an obvious ways of gaining a foothold in Asia and there has been increased activity in this area in Asia in the last few years (see Figure 2 Globalization of Pharmaceutical Companies). These range from intra-Asian deals like Abbotts recent acquisition of fast-growing Piramal in India which made Abbott the largest pharmaceutical company in India (with 7% market share9) to several intra-Chinese transactions and west-into-east deals including Sanofi-Aventis partnership with Nichi-Iko Pharmaceutical10. As these markets mature companies need to remain vigilant but flexible to weather occasional setbacks. For

Date May-10 May-10 Mar-10 Sep-09 May-09 Apr-09 Apr-09 Feb-09 Dec-08 Dec-08 Oct-08 Sep-08 Jul-08 Jul-07 Jan-06 Jul-05 Jun-05 Dec-05

Value $3.7B $110m (10%) $4.9B $1.3B $394m (16%) $688m n/a $2.1B (69%) $36m $9.5B $245m $4.6B $546m $606m (25%) $8.5B $2.7B $5.7B $810m

Notes (India) Generics (S-Korea (GY) Generics (GY) Generics (S-Africa) Generics (Brazil) Generics (Mexico) Generics (Cz Rep) Generics (Pakistan) OTC/Gen (US) Generics (Egypt) Generics (India) Generics (Australia) OTC (Cz Rep) Generics (UK) Generics (US) Generics (GY) Generics (US) Generics

About Accenture

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DAIICHI SANKYO COMPANY, LIMITED Sanofi-aventis Sanofi-aventis Teva Pharmaceutical Industries Ltd. Novartis AG Novartis AG Actavis